Page 192 - ic92 actuarial

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Q2. Discuss the relationship of classification
process with other mechanism.

Ans. The classification process must be considered within
the overall context of marketing, underwriting, and rating.
The overall goal is to price an insured properly for a
given coverage. This may be accomplished in many
ways. Risk classification is one of such step, which help
make significant pricing decisions.

3. Write short notes on -

a) Exposure Base - Exposure base is an important
point to be considered.
For e.g, for personal automobile insurance, the exposure
base is an insured car year. For workers' compensation,
exposure can be the total payroll, hours worked, limited
payroll etc. Manual premiums are calculated as the
exposure times a rate.

Exposure bases should be as closely proportional to costs
as possible. E.g, workers' compensation has both medical
and indemnity costs. The chosen exposure bases would
be proportional to costs, assuming that all workers have

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